By Deepshikha Singh, Deputy Head of La Française SIR & Head of Stewardship, La Française AM.
The past few weeks have been marred by a flurry of panics in the banking sector, first in the US and then spreading to Europe. Initially, it was Silvergate, which announced its voluntarily liquidation on 8 March. That boiled over into a “bank run” on SVB, prompting the Federal Deposit Insurance Corporation (FDIC) to take over all its deposits on 10 March. Then, the banking panic spilled over to Signature which was shut down by regulators on 12 March. Last weekend (March 18/19), more fallout surfaced as we saw the fire sale of Credit Suisse to UBS in a government-brokered deal and shares of First Republic Bank suffer heavy losses due to its similarities with SVB.
As SVB collapsed and contemplations began as to the why and how, a lot of ESG (Environmental, Social and Governance) critics took the opportunity to blame the bank’s collapse on its ESG focus and ‘wokenomics’. SVB’s Board was blamed for focusing on its Diversity and Inclusions (DEIs) policies rather than risk management.
WAS SVB PUTTING TOO MUCH EFFORT AND FOCUS ON ESG AND DEI?
The original thesis of ESG is to combine profit and purpose. In terms of purpose, SVB held a critical role in supporting the start-up ecosystem globally and served predominantly start-ups and pre IPO companies as clients. The bank enabled young companies, most of which were working on providing solutions to much needed social and environmental issues, to operate without hindrance. In terms of ESG strategy, SVB did have a focus on DEI, but it extended beyond gender or race and was implemented among employees and clients. According to its Corporate Responsibility Report, the Board of SVB took a multidimensional approach to diversity and considered a variety of skills and attributes:
- Industry experience, particularly in banking and client industries
- Functional, technical or other professional expertise
- Gender, age or racial/ethnic diversity
- Other important attributes, such as veteran status and geographical diversity
It should be stated that banks, tech companies and especially the start-up community, which SVB served, are notorious for being non-diverse, and, in fact, have a long history of red-lining and systemic discrimination. According to the 2022 proxy filing, senior leadership of SVB was 38% female (globally) and 38% non-white (US). On its Board, 5 out of 11 Directors were women (45%). However, 10 out of these 11 Board Members were white and 7 were aged 60 and higher. Additionally, 11 out of 12 Executive Board members including the CEO, CFO and COO were male and all 12 were White. The bank has good targets to improve diversity but at the time, it was certainly not as diverse.
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